CIT vs Smart Link Network Systems (P.) Ltd.

Z.A. Haq, J.—This appeal by the Revenue, arises out of the order passed by the Tribunal in ITA No. 100/Pnj/2013 (assessment year 2008-09) on 14-8-2013 dismissing the appeal filed by the Revenue and upholding the order passed by the Commissioner (Appeals), Panaji, on 8-3-2013.

Mrs. Asha Desai, the learned advocate for the appellant, has made her submissions in support of the two substantial questions of law proposed in para 5 of the memorandum of the appeal.

As far as the first substantial question of law relying on the provisions of section 28(va)(b) of the Income Tax Act 1961 is that the respondent-assessee has received the consideration towards the transfer of motherboards sales and marketing under the brand name of the purchasing company consequent on a joint venture agreement as a capital receipt and not as a revenue receipt. The submission on behalf of the appellant is that the consideration received by the respondent/assessee from M/s. Giga Byte Technology India Ltd. is to be treated as business receipt and not as capital gains as claimed by the respondent/assessee and consequently, this amount towards business receipt cannot be deducted from the total income of the respondent/assessee. The learned advocate has submitted that the Commissioner (Appeals) and the Tribunal have committed an error in not properly appreciating the transfer of business agreement. The learned advocate has submitted that the Annex. I to the transfer of business agreement dt. 31-8-2007 shows that the respondent/assessee has received consideration which is assessable for the purposes of taxes as per the provisions of clause (b) of section 28(va) of the Income Tax Act. In support of her submission she has relied on the judgment in the case of Commissioner of Income Tax, Nagpur Vs. Rai Bahadur Jairam Valji and Others, .

It is submitted on behalf of the appellant that the Commissioner (Appeals) and the Tribunal have committed an error in deleting the expenditure relating to R & D apportioned to eligible section 80-IB units though it was fully allocated by the respondent/assessee to non-section 80-IB units. The submission on behalf of the appellant is that the respondent/assessee has done this to reduce the tax liability by claiming higher profit in section 80-IB units.

Mr. Jitendra Jain, the learned advocate for the respondent, has supported the impugned orders.

It is submitted on behalf of the respondent/assessee that the assessee has transferred the "business" as defined in BTA and the respondent/assessee has shown it under the "capital gains" which is in consonance with the first proviso below section 28(va) of the Income Tax Act.

Shri Jain, the learned advocate for the respondent, has submitted that the Commissioner (Appeals) and the Tribunal have recorded findings of fact on this issue after examining the terms of transfer of business agreement and the material on record and the provisions of the Income Tax Act. It is submitted that the substantial questions of law as formulated by the appellant in para 5 of the memorandum of appeal does not arise for consideration.

We have heard the learned advocate for the respective parties and with their assistance have examined the record and also seen the transfer of business agreement dt. 31-8-2007, a copy of which is produced at the time of hearing.

The relevant portion of Annex. I of the abovementioned transfer of business agreement reads as follows :

"The shareholders at its annual general meeting held on 6-8-2005 had approved the transfer of business (sales and marketing) of Gigabyte Motherboards to the subsidiary company, M/s. Gigabyte Technology (India) Ltd. D-Link has completely stopped sales and marketing of motherboards since 1-6-2007 and has now transferred sales and marketing activity of motherboards to Gigabyte India, which is a joint venture company between D-Link and Gigabyte Technology Company Ltd., Taiwan. By transferring this business D-Link has transferred all the knowledge based and the goodwill it had gained/generated over the past 5 years to Gigabyte Technology (India) Ltd. It has transferred the entire customer contacts, channel information and operational knowledge relating to motherboard business to Gigabyte Technology (India) Ltd. It has also transferred the employees including senior employees which were responsible for growing the motherboard business of Gigabyte."

The Tribunal has considered all the relevant aspects and has recorded a finding of fact in para 6 of the impugned order holding that the claim made by the respondent/assessee company as "capital gains" in respect of the amount received by it in terms of the transfer of business agreement, is proper and also the findings given by the Commissioner (Appeals) in this regard does not require any interference. We are of the view that the findings of fact recorded by the Commissioner (Appeals) and the Tribunal are based on proper appreciation of the material on record and in consonance with the provisions of section 28(va), first proviso, of the Income Tax Act.

As far as the challenge raised by the appellant regarding section 80-IB deductions, the findings given by the Commissioner (Appeals) and upheld by the Tribunal are also based on proper appreciation of the material on record. The Tribunal has recorded that the product has been manufactured in section 80-IB units since 1st Sept., 1999 and the expenditure on research and development has been incurred since 2007 and the expenditure on research and development cannot be said to be on a product which is commercialized. The appellant has not been able to point out any perversity in the findings recorded by the Commissioner (Appeals) and upheld by the Tribunal.

In view of the above, we do not find any infirmity in the impugned orders and the substantial question of law does not arise for adjudication in the above appeal.

The appeal is dismissed. However, in the circumstances of the case, the parties to bear their own costs.